Banking News

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Tesco enters current account and mortgage market

29 July 2008 / by Daniela Gieseler

In a challenge to major high street banks, Tesco will announce plans to partake in both the current account and mortgage market today.

Tesco has reached an agreement with the Royal Bank of Scotland to purchase their 50 per cent stake in the Tesco Personal Finance Group Ltd (TPF) for £950million, which will enable the company to offer the services of a full-blown bank to customers.

The company has offered personal finance services with RBS for the past decade, offering home and car insurance, savings accounts and credit cards. All in all, Tesco Finance has already got seven million customers.

The expansion is part of Tesco's long-term strategy, as CEO Sir Terry Leahy explained: "Services are bigger and faster-growing markets than food. As consumers look to make every pound work harder, it is a good time for Tesco to expand its presence.

"Tesco's clear strategy, set out a little over 10 years ago, has created new service businesses attracting around seven million customers," he added. "We have become a trusted supplier of innovative products and services offering great value and I believe Tesco's special relationship with consumers will enable TPF to move its business to the next level."

In Glasgow, Tesco is already running a trial and has turned part of its store into a banking area with advisers and computer points for customers.

With a network of about 2,000 stores in the UK, Tesco, which will be offering banking both online and in-store, will be in a truly enviable position and might take a large slice away from the high street banks' market share. Tesco expects that the new services could make the company £1billion in revenue a year, which is more than twice its current profits.

The financial world welcomed the move, but said it would not change Tesco's position instantaneously. Adrian Lowcock of Bestinvest commented: "Just because they have expertise in the supermarket arena doesn't guarantee success in other fields."

Entering the mortgage market will be a particularly bold move in a time when other lenders are struggling to provide the finances they need in order to offer borrowers affordable rates.

Andrew Higginson, Tesco's current finance and strategy director, said he wanted to offer consumers more straightforward current accounts and, in time, even mortgages, although he would not commit himself to disclose a time frame for the introduction of the new services.

"We start from a position where we can be much more transparent on our pricing but also it is about giving customers products they want at a fair price," Mr Higginson said.